Preface

The Treasury Board developed this guide for
operational managers to explain the basic framework of the
Operating Budget regime.

The guide contains a generic model departments
and agencies may wish to adapt when implementing Operating
Budgets for their programs. The document is organized to place
the budget regime in the larger context of change while making
managers more sensitive to people issues and increased
accountability.

The introductory overview links PS2000 to the
Operating Budget regime and explains why it is being introduced.
The budget framework section provides generic information to use
in planning the implementation of Operating Budgets. The section
on management context outlines the philosophical and cultural
environment that managers must foster to derive the most benefit
from Operating Budgets. The section on the people side of
Operating Budgets emphasizes the importance of reflecting on
people issues in planning options or making decisions. Appendices
with questions and answers, checklists and information on
costing, procedures and systems complete the document along with
a feedback section.

Overview

A fundamental thrust of Public Service 2000 was
to review the way the government serves Canadians. This review
revealed that most Public Service employees believe they could
provide better service if significant changes were made to
government systems and procedures. Over time, these have become
rigid and designed primarily to control. It was evident that
changes were needed to improve service to the public.

Managers who commented to the various task forces
believed that, if given more flexibility and fewer restraints in
how to combine resource inputs, they could improve service to the
public. The result is the concept of an Operating Budget that
includes salary, operating and minor capital funds. Managers will
exercise an expanded scope of financial and program
decision-making authority under the Operating Budget regime. In
turn, the accountability aspect of this change is that managers
will have to provide services to Canadians more
cost-effectively.

Departments and their managers will get the
maximum benefits from Operating Budgets if the management
cultural change set out in the PS2000 White Paper takes place.
Empowering managers and their employees and encouraging them to
use their creative energies to get the job done in the most
cost-effective way is essential.

Operating Budgets will be fully implemented on
April 1, 1993. Currently, several departments and agencies are
participating in pilot projects. Although managers will find the
concept reasonably straightforward, they must comply with the
legal framework. In addition, they must take into account costing
and other considerations as they plan, evaluate options and make
program delivery decisions. This guide was prepared to help
managers during the transition to Operating Budgets.

The Budget Framework

Introduction

To stimulate change and renewal in the Public
Service, the government is adopting a new approach to resource
management based on establishing an Operating Budget for each
program defined in the Estimates.

Operating Budgets are defined on a total or gross
expenditure basis and include salaries, wages, operating
expenditures and minor capital expenditures.

An Operating Budget is designed to provide
managers with more flexibility to achieve intended results. It
enhances the manager's capacity to select the most efficient mix
of resources. Treasury Board (TB) will no longer allocate or
control person-years. Managers will decide the appropriate mix of
resources to provide services. At day's end, managers will be
responsible for ensuring that their clients get good value for
their tax dollar or user fees.

Departments must plan and budget for all
personnel costs, including any increases that result from
operational or organizational decisions their managers make.
Furthermore, departments must allocate and reallocate available
resources within an Operating Budget so that they are used
efficiently and effectively.

Rationale

The rationale for Operating Budgets is that the
manager should have the flexibility to deliver programs in the
most cost-effective way possible, thereby achieving better value
for money. The manager's budget will bear the full resource
impact of decisions he or she makes. Managers will have to live
within their budgets and respond to changing conditions by
adjusting practices and modes of operations. This means that,
when making program decisions, managers will have to consider all
costs to the government, not only those normally charged to their
budgets.

Basic Principles

The Operating Budget regime is based on certain
principles that guided its development and approval. These
principles may help to resolve specific issues that arise during
implementation.

Departments and agencies must live within approved
budgets.

Benefiting from Operating Budgets will depend on empowering
line managers and employees.

Budget Design Parameters

General

In many respects, the concept of an Operating
Budget is common sense. To administer one, managers will have to
plan and manage their programs taking into account the full costs
of their operations. Some costing formulae, such as inflation
adjustments and transfer pricing, may create the impression that
changing over to Operating Budgets is complex. It isn't. As with
anything new, the transition period will present challenges to
program and line managers.

This new approach to managing resources should
also stimulate reviews of related systems. For example, managers
should challenge controls that negate empowering front-line
managers or deter productive management and improving service to
the public.

Costing of Inputs

Managers have more scope for innovation under the
Operating Budget regime. To make the best decisions, managers
will need to know the full costs of all aspects of delivering
their programs, including the full cost of other delivery
options. Full cost means all costs to the government, not just
those of the program manager.

Under an Operating Budget regime, managers may
use various analytical tools to explore new opportunities. For
example, a "most efficient organization" or "make-or-buy"
analysis may help to design the best organizational structure.
Likewise, a "cost-benefit analysis" may be useful in evaluating
programs or choosing among options. Readers may find Appendix 3
useful as a quick reference to the guidance available on costing.
Functional experts within departments can provide advice on when
cost-based analyses seem appropriate.

To implement Operating Budgets successfully,
managers will have to take into account the real costs of various
inputs when making decisions on resource allocation. Managers
should be aware of their options and the costs of these options
when making decisions. The cost inputs include: salaries,
benefits, overtime, bilingual bonuses, training, travel, and
materials; repairs to and maintenance of equipment and buildings
where appropriate; and minor capital.

Financial Design Elements

As a general rule, departments are responsible
for all personnel costs except those for which Treasury Board
(TB) has specifically accepted responsibility.

Treasury Board liabilities

The TB will fund some personnel costs that would
normally come out of departmental budgets. These are costs that
departments cannot control, and that may add systemic financial
biases to decisions affecting people. Among these costs are the
following:

maternity benefits;

severance pay on separation (only the amount that is earned
for each year of service and paid on resignation);

liquidation of vacation credits on separation;

costs of restructuring a classification standard; and

extraordinary payments such as new equal pay awards.

Certain employee benefit costs incurred by the
government such as pensions, unemployment insurance
contributions, disability insurance, health insurance, dental
plan, and payroll tax do not appear in managers' budgets. Though
this continues under the Operating Budget regime, these costs are
now reflected in the "transfer price".

Changes in a manager's salary obligations have an
impact on these costs. In keeping with the concept of
accountability for the full costs of managerial decisions, a
transfer price applies when personnel costs are increased or
reduced. Transfer price adjustments are discussed in more detail
later in this chapter.

Departmental costs

Departmental costs are all those normally charged
to departmental votes. On the salary side, these include:

all personnel costs resulting from operational or
organizational decisions made by the department such as changes
in the size or mix of the work force, including the associated
equal pay liability;

The TB has signed a work force adjustment
directive with the unions. Managers should be aware of the costs
when an employee separates. Costs relate to potential pay outs,
such as pay in lieu of the unfulfilled surplus period, severance
pay, salary protection, retraining or other special lump-sum
compensation, or to ensuring continued employment within the
Public Service.

Employee costs that result directly from a
manager's operational decisions, such as overtime, acting pay,
and reclassifications, will come out of his or her budget. Other
large or extraordinary payments, such as education leave or
extended sick leave, may be more difficult to absorb in
individual budgets. Furthermore, placing the financial burden of
certain costs on the responsibility centres could bias hiring
decisions or compromise personnel policy objectives. For example,
it could deter a manager from hiring individuals who are at the
top of their salary band or who bring with them unfunded
entitlements. These could be employees who need extensive
training such as language training, others who require equipment
to enable them to do their work such as employees with
disabilities, and individuals who have a lot of vacation leave to
be cashed-out at year end or have salary protection.

To remove potential biases from the system,
departments may wish to set up a corporate budget for such
payments. This fund could potentially standardize costs for
groups and levels, and include an internal transfer price for
accommodation and common services. In separating these funds from
individual salary budgets, departments should consider the
following: the levels of delegation in the department; the size
of individual budgets; the ability of the manager to manage
certain payments; and the implications for the department's
performance in employment equity, training and development and
official languages.

Automatic carry forward

It has been government policy that unspent funds
lapse at the end of the year. This practice encouraged managers
to use up funds in their budget as the fiscal year drew to a
close.

Good management and planning may leave some funds
unspent at year end. Therefore, after departmental liabilities
are covered off, Treasury Board will permit an automatic carry
forward to the next fiscal year of up to two percent of a
department's Main Estimates Operating Budget, based on lapses
reported in Public Accounts.

The TB will build provisions for anticipated wage
settlements into departmental budgets. In some cases, settlements
may not be signed in that budget year. When this happens,
departments will have to lapse the funding in order to have
access to TB Vote 5 funding in future years for the retroactive
payments. The two percent carry forward provision is in addition
to the lapsed funding for retroactive pay.

For departments and agencies not participating in
a pilot project, the first year that the carry forward will be
available is 1994-95, based on the 1993-94 Main Estimates.

The carry forward is not cumulative.

Transfer price

Generally, funds may be reallocated within the
Operating Budget without consequence. There is one exception.
When managers transfer funds from Other Operating Expenditures to
Salary and Wages, for example, to hire additional staff, they
must set aside a transfer price of 20 percent of the actual
salary. Conversely, if managers reduce the salary base by
reallocating a portion to operating expenditures, they are
entitled to a credit of 20 percent. The transfer price will not
apply to student employment programs.

The transfer price adjustment ensures that
managers recognize and compensate for personnel costs that are
not within their budget allocation.

Inflation adjustment

In recent years, Treasury Board adjusted the
salary budget for negotiated wage settlements but generally not
for the impact of inflation on Other Operating Expenditures.
Fiscal management considerations were responsible for this
approach which meant, in effect, that a productivity dividend in
the amount of inflation was being taken annually on non-salary
operating expenditures. Similar considerations of what is
affordable will arise in determining the extent to which
Operating Budgets can be adjusted to compensate for the impact of
inflation.

As an interim measure through 1994-95 in line
with current fiscal constraints, the TB will adjust Operating
Budgets for inflation on the basis of a reference year (1992-93
Main Estimates) split of salary and other operating expenditures
using the salary proportion to calculate the adjustment factor.
Departments will be free to allocate the funds received for their
entire Operating Budgets as they deem appropriate.

When departments decide to reallocate funds
within their Operating Budgets, the TB will not adjust the
weighting factor fixed by the 1992-93 salary proportion to
reflect these changes. However, when it approves funding for
workload adjustments or new policies, it may revise the factor to
reflect significant changes in the composition of Operating
Budgets.

In 1995-96, the TB will reassess the feasibility
of applying a universal or unweighted adjustment.

Accommodation

Managers should use space efficiently while
providing a productive work environment for employees. The
Operating Budget regime includes appropriate incentives.

The current system of funding for office
accommodation is an amalgam of user pay and Public
Works-appropriated funding. During the next few years, Treasury
Board Secretariat, Public Works (PWC) and departments will look
at developing a more rational approach.

Meanwhile, the TB decided, in the context of the
1991-92 Multi-Year Operational Plan (MYOP) review, that
departments should pay from their reference levels for additional
space for their existing programs. They also have to include
accommodation in costing policy initiatives. This will continue
to apply under the Operating Budget regime. As an incentive, TB
will consider providing savings to departments when, by reducing
staff, they give up space that results in a savings to Public
Works. This would be done on a case-by-case basis, with the
review taking place as part of the annual MYOP process.

Establishment Size

In the past, person-years have been a
straightforward and easily understood control on resource use and
an indicator of the size of the Public Service.

Since person-year controls are being
discontinued, there will have to be other ways to measure the
size of the Public Service. Parliament and the public will want
some common measure related to employment that would reflect
resource use. Departments will also want to measure the size of
their organizations because the number and types of employees
influence many management decisions including those related to
work planning, recruiting, accommodation, career development and
training.

Under the Operating Budget regime, the government
will continue to report on the size of the Public Service using a
measure of labour consumption called "full-time equivalents"
(FTE). This will take account of such factors as term and casual
employment and job-sharing. Appendix 1 explains how to calculate
a full-time equivalent.

In addition, the TB will continue to use the
"target executive count" (TEC) to control the number of
executives in each department and agency.

Statistics Canada will still report employment
numbers and add the full-time equivalent concept for the Public
Service as a whole. They will obtain this information from Supply
and Services Canada as they do now for employment-related
figures. Full-time equivalent numbers will also be required for
Part III of the Estimates.

Management Context

Introduction

Operating Budgets by themselves do not mean
Canadians will receive timely and quality services. More is
needed. In the past, there was too much emphasis on controls that
limited and constrained managers and their staffs. This inhibited
creativity, innovation and risk taking. Simply put, the culture
and philosophy of Public Service management had to change.
Operating Budgets should be a catalyst for adopting the new
approach to Public Service management.

Resource Environment

The TB has reduced the non-salary Operating
Budgets of departments and agencies periodically during the past
seven years. At the same time, these organizations have had to
absorb inflationary increases and higher demands for services.
Not compensating program budgets for inflation has eroded
purchasing power by about 20 percent over this period.

The measures to reduce government spending have
affected every Public Service employee in one way or another.
Most, if not all, Public Service managers have responded to the
challenges this sustained period of deficit reduction has
presented. In fact, there is positive evidence that managers have
used innovation and creativity successfully to provide adequate
services to Canadians. Yet, staff frustration and stress are
increasing as a result of sustained restraint measures.

The efforts of managers and their staffs have
been invaluable in providing services to Canadians during this
period of restraint, which will likely continue for the
foreseeable future to reduce the deficit.

Managing expenditures has meant a mix of program
reductions and across-the-board cuts. It has meant that
departmental budgets have declined significantly in real terms.
It certainly has meant doing more with less and, in some cases,
doing less with less.

Service to Clients

Government programs and services exist to serve
Canadians. These same Canadians have an increasingly higher
awareness of and higher expectations for the services they
receive from their government and its employees. To respond
acceptably to these expectations, Public Service employees must
adopt a more client-oriented relationship with the public. This
means changing how they perceive and serve the public.

All aspects of the program delivery systems,
starting at the service counter and extending upward to the
political level, should be reevaluated with the client in mind.
With employees preoccupied with client satisfaction, they will
pursue opportunities and innovations that will result in improved
service.

Consultation

Canadians no longer accept policies or rules that
have an impact on their lives or livelihood without some form of
consultation beforehand. In some cases, the consultation process
will delay the implementation of policies. Even if a policy is
intended to enhance the public good or protect its interest, the
government can't take the public's point of view for granted or
presume its endorsement.

Policies that undergo public consultation are
usually more readily understood and accepted than those that
don't. Increasingly, in this period of technological change, the
expertise required to deal with particular problems lies outside
the Public Service. Consultation is the best and sometimes the
only means of access to this expertise.

Innovative Management

Sustained fiscal restraint has affected all
programs, many of which are being reexamined, in whole or in
part.

Innovation remains the key to improved
efficiency. All managers are responsible for fostering and
encouraging innovation throughout the Public Service. To make
progress, they must deal with the cultural and structural aspects
of innovation at the same time.

On the structural side, the government is acting
to provide managers with better management tools like Operating
Budgets. Furthermore, the White Paper on Public Service 2000
emphasizes the need for removing all but the essential central
controls and for creating a results-oriented culture.

Currently, the central agencies are reconsidering
controls and constraints, but departments and individual program
managers must do the same thing, too. It is worth noting that one
conclusion of the PS2000 review was that departments, not the
central agencies, imposed many of the controls that had a
negative impact on program delivery.

On the cultural side, managers and employees must
be encouraged to unleash their creative energies to decide how
best to use available resources to get the job done in the most
efficient way. Trust and confidence between employees and their
managers is the cornerstone of the desired cultural change.

Employee Empowerment

Generally, the culture of the Public Service has
been excessively oriented toward command and control. Simply put,
this culture has got to change if the Public Service intends to
continue providing responsive, effective and efficient service to
Canadians. During the PS2000 studies, it was noted that
front-line employees felt they could provide better services to
Canadians if they worked in less constrained and controlled
environments. In effect, these employees are seeking
empowerment.

Empowerment exists when employees believe they
have the authority they require to respond to their clients'
needs and the ability, support and encouragement to exercise that
authority effectively. No manager can direct that an employee be
empowered. Critical to determining the extent to which an
organization can achieve the empowering of its employees are
precise mission statements, a common vision, shared values, clear
guidelines, effective training, good communications, explicit
goals, demonstrated support and appropriate motivation. In
addition, successful empowerment presupposes the delegation of
appropriate decision-making authority to the lowest reasonable
level in a program coupled with appropriate accountability.

The transition from a framework that minimizes
risks and limits discretion to one that encourages risk taking
and individual decision making will be challenging. No two
programs or situations are the same. For example, in a safety
regulatory program, the need for consistency and uniformity might
justify a reduced scope of empowerment. Therefore, the balance
between empowerment and control must take into account the
special circumstances of each situation. Empowerment must not
compromise such fundamental values as prudence in the use of
public funds, consistency and fairness in dealing with the
public, and probity in conducting government operations.

Operating Budgets will provide managers with more
flexibility to deal with program requirements and to empower
employees.

Program Review Considerations

Although implementing Operating Budgets will give
managers more discretion and authority and improve program
efficiency, the gap between client demands and resource
availability will continue to exist. In addition to cost
efficiency, managers are responsible for designing and delivering
their programs in the most effective manner possible. This means,
in program delivery terms, that managers must be able to assure
their ministers that they are using resources in activities of
maximum benefit to Canadians.

During past periods of government expansion, some
programs grew and increased services to levels that are no longer
affordable. In addition, there are some programs that the
government may not consider as important in the national interest
as others. The same is true of regulatory programs. For example,
in the health or safety inspection field, it is often argued that
all activities are important and, therefore, must not be
constrained by funding limitations. It is the manager's
responsibility to review his or her program and allocate
resources to the most important activities. Once the manager has
exhausted all avenues for reallocation and if serious program
deficiencies remain, it is the responsibility of management to
bring these to the attention of ministers.

An "effectiveness review" will assist in
identifying service or regulatory activities that are relatively
less important than comparable activities. In some situations, it
may be possible to curtail these activities. Where a reduction in
service will result, the manager must consider the scope and
extent of public notification required. It will be evident that
some low value activities cannot be terminated. In such
situations, it becomes the manager's responsibility to look at
other ways to deliver the program.

Each situation is unique and the strategic
considerations must take this into account. Examples of other
ways to deliver programs include contracting out, delegation of
program functions to the private sector, transfer payments,
licensing arrangements, bilateral agreements and devolution.

Managers must evaluate these options on their own
merits and discuss them with their departmental legal advisors at
an early stage.

Risk Management

Public Service managers frequently make risk
management decisions. Specifically, program delivery decisions
that require a manager to make choices about the allocation and
best use of limited resources include a risk management
process.

Managers must live with risk. Their
accountability extends to the management of risks that are part
of their operations, regardless of whether they have limited
resources to control these risks.

Although risk management has been around for some
time, there is no one way to deal with risks. The classic form of
risk management is often referred to as "intuition" or "gut
feeling". Sometimes a manager, on the basis of his or her
knowledge and experience, can use this approach to effectively
identify and minimize risks. Given that the government's role in
risk management increases as the public's expectation of
protection against risk increases, a more structured approach is
required.

There are many advantages to a structured
framework for risk assessment and management. First, a written
framework provides a common understanding of the philosophy and
critical elements of risk management decisions for both
management and staff. Second, establishing decision criteria or
indicators ensures that all relevant factors are considered
during decision making, thus enhancing consistency of decisions.
Third, it is much easier to monitor, evaluate and improve a
process of decision making that takes place within a
framework.

To qualify as a structured risk assessment and
management framework, the process must be methodical, objective,
measurable and defensible. Not all risks can be eliminated or
controlled. Some risks have to be accepted as inherent in the
nature of the program.

Managers must not sidestep identifying risks
simply because they believe that every single risk, once
identified, must be controlled. Clearly, managers cannot and
should not be expected to control every risk. It is a management
responsibility to identify risks, rank them and identify the
costs of preventing them. Therefore, managers must rank program
risks with the most likely and catastrophic at the top and the
least likely and least catastrophic at the bottom. Only so many
resources are available. Thus, after reaching a certain point in
the ranking from the top down, risks are accepted. The process is
dynamic and adjusts to changing environments and conditions.
Every manager has certain tolerances and at some point more
senior levels of the organization are involved. Ultimately,
ministers may also have to be involved.

Though individual managers may apply the risk
management process, its success often relies on a cooperative
team effort.

Organizational Considerations

Under the Operating Budget concept, the
organizational structure put in place to deliver a program will
heavily influence the salary part of the budget and have a direct
impact on program effectiveness. Adhering to good organizational
principles should result in a structure that contributes to the
efficient and cost-effective delivery of programs. Managers can
improve efficiency by:

minimizing management and supervisory layers;

empowering the front-line;

establishing a broad span of control;

avoiding excessive barriers or filters such as deputies and
associates; and

eliminating the duplication and overlap of functions.

When a manager contemplates reallocating funds
from or to salaries, he or she should take organizational
implications into consideration. When the proposed change is
significant, the manager may have to review the whole
organization to ensure that any changes to its structure would
allow it to continue to support program delivery.

The People Side of Operating Budgets

Good People Management

Operating Budgets in themselves will not lead to
better or worse people management. The decision-making processes
to determine the most efficient use of resources, based on
setting clear objectives and establishing personal
accountability, are the foundation of good people management.

The challenges and opportunities presented by
Operating Budgets will, however, affect the way people are
managed. Operating Budgets provide a broader range of options for
managers to make the best use of their people and other resources
by applying the principles and values of good management, while
respecting the legal framework of the Public Service. Effective
planning, recruitment, training and development, organizational
design and communication are essential to good people management
and key to the successful implementation of Operating Budgets.
Managers must be aware of both the short- and long-term benefits
and costs of good people management decisions.

Though not an incentive to increase or reduce the
size of the Public Service, increased flexibility to hire
indeterminate employees has proved in some pilot projects to be
more cost-efficient. Indeterminate employment may give a better
return on investment in training employees by retaining technical
expertise within the Public Service. Hiring decisions must weigh
the costs of salaries and benefits and the investment costs in
employees, such as training and development and the learning
curve, against the longer-term gains in corporate memory,
commitment and productivity and the return on training and
development. Managers must take into account that hiring
indeterminate employees involves multi-year expenditure
commitments and investments.

People management requires a lot of planning to
ensure that the resource planning cycle reflects personnel
activities. Managers will have to review all personnel decisions
for the possible impact on and costs to the organization as a
whole. The introduction of Operating Budgets should cause
managers to question their approach to managing positions and the
classification function. Until now, positions have often been
classified without enough concern for the impact on payroll
expenditures. The responsible organization will have to bear the
effect of redress decisions, which are often retroactive and have
significant costs, within the current year's budget.

People management practices will become more
transparent as new delegation, authorities and accountabilities
provide more flexibility to managers. Affordability will be a
major factor in all resourcing decisions. This does not imply,
however, that good people management principles and practices
need suffer as a result of a bottom-line approach. On the
contrary, they will be critical to how well an organization
performs.

The role of the human resources specialist will
be key in that good, timely advice and actions will have an
impact on the manager's ability to meet objectives and on his or
her potential for increased flexibility. The costs of
administering the human resources program as well as the cost of
individual actions will have a direct impact on the organization.
Human resources officers will have to be able to provide advice
on such issues as organizational design, classification
structure, and personnel policies and procedures as well as their
potential impact on the Operating Budget. To play a value-added
role, they will have to be involved early in the planning cycle.
While continuing to ensure that employees are treated fairly and
equitably, they will have to know the mandates and objectives of
the managers and the community they serve.

Departments and line managers will have the
challenge of managing resources more effectively and the
opportunity of putting clients, stakeholders and employees at the
centre of their efforts to respond to changing needs and
expectations.

Authorities and Accountabilities

Most authorities that affect the management of
people are the responsibility of departments. Managers should be
aware of their responsibilities and accountabilities and the
potential financial implications of the decisions they make under
personnel authorities. Line managers should contact their
personnel advisors -- or, in the case of legislative
responsibilities, their departmental legal advisors -- for
information on the level of management delegation within their
department and their responsibilities under each of these
authorities. Delegation of these authorities within departments
should be in line with the delegation of responsibilities and
should be consistent with the delegation of financial
authorities.

Accountability

This guide emphasizes how Operating Budgets will
provide managers and organizations with greater flexibility and
opportunity to innovate in determining more efficient and
effective ways to deliver programs and services to the public.
The real benefits of Operating Budgets will occur only where
clear accountability exists for the achievement of results. This
requires clear and well-established planning, budgeting and
monitoring frameworks. Without clearly established expectations,
no means exists to determine whether resources are being used to
best effect.

While a major focus of accountability will be on
program and service delivery results, it must also take into
account the complexity and multiple responsibilities of the
Public Service environment. Accordingly, accountability must also
include results in specific areas such as training and
development, employment equity, people management, leadership and
team work and official languages. For example, in people
management, accountability will include whether the manager has
established frameworks and mechanisms to assist employees to
manage their careers and receive appropriate development.

Accountability regimes must also bring into focus
how managers promote and support the underlying values of the
Public Service: probity, equity and prudence in the use of
resources along with increased emphasis on responsiveness,
innovation and service to Canadians.

Within this spectrum of accountability, managers
will be held responsible for, and will in turn require their
subordinates to answer for, their performance within a management
system that contains the following elements:

mutually agreed-to expectations and priorities that are
defined and stated as clearly as possible;

the assignment of authority and resources commensurate with
the expected results;

a means of assessing, evaluating and getting feedback that
keeps managers and subordinates aware of progress towards
expected results; and

a means of appraising employee performance on the results
achieved and of following up with fair rewards or sanctions.

With Operating Budgets, the shifting of more
authority to managers gives rise to expectations that a manager's
accountability will focus on the results obtained with the
resources provided. This will require the integration and review
of judgments about performance in specific areas such as career
development and resource management with results achieved in
supporting government and ministerial objectives and departmental
services and programs.

Managing Implementation

The key to the successful implementation of
Operating Budgets is effective preparation, delegation, role
definition, communication and training. As implementation
evolves, it will ultimately require and result in a change in
management culture.

Delegation

Operating Budgets will not have the same levels
of delegation in departments. Each department should base the
appropriate levels of resource delegation on its business
activities, structure, size, procedures and capabilities. A
department must ensure that its delegation scheme is legal and
that its instruments of delegation are appropriate. Departments
should reassess their management structures to ensure that the
financial, administrative and personnel authorities delegated to
the managers responsible for service decisions are consistent.
With effective communication, training and management information
systems, departments can progressively implement the full
flexibility and efficiency that the Operating Budget offers.

To progress to and achieve maximum delegation
under Operating Budgets will require enhanced management skill
and constructive decision making. Deputy heads and managers alike
must ensure that key elements are in place as more authorities
are delegated. The "Manager's Checklist" (Appendix 5) lists these
key elements as questions that deputy heads and line managers may
ask in relation to the whole department or a responsibility
centre.

Communicating

Communication is essential to the success of
Operating Budgets. Success depends on managers and employees.
Departments should include unions, employees and managers early
in discussions before implementing Operating Budgets. Managers,
employees and unions need information and an opportunity to
discuss the benefits and effects of the new regime and to confirm
or dismiss perceptions.

While it is important not to oversell Operating
Budgets, discussing the positive opportunities for people may
help to minimize the concerns and uncertainty of employees,
unions and management.

The "Questions and Answers" (Appendix 6) may help
to establish a communications strategy. Managers may also wish to
develop their own questions and answers on the implementation
process in their own departments.

Training

Effective training in all aspects of Operating
Budgets must complement the communication of information. The
Treasury Board Secretariat (TBS), the Office of the Comptroller
General (OCG), the Canadian Centre for Management Development,
and Training and Development Canada are currently dealing with
training requirements. Departments may want to develop their own
training modules to reflect the skills that their personnel,
financial, and administrative staff and line managers
require.

Financial and Personnel Support

Operating Budgets will have a significant impact
on financial and people management practices and bring about new
expectations of the two functions.

While the financial and personnel functions will
continue to provide the traditional services, these functions
will assume a management dimension by playing a dynamic support
role to managerial decision making through providing advice,
analysis and information.

Financial officers can add value to their role by
providing advice and assistance to responsibility centre managers
on strategic and operational planning, financial legislation,
authorities, delegation, policies, costing of inputs, information
and reporting, improved access to financial information and
financial management information systems.

With flexibility in managing their dollar
resources, managers will need more timely information on their
salary and wage expenditures and will have to forecast all
expenditures. As a consequence, managers will have to use
personnel information more effectively. Examining the
demographics of an organization and forecasting planned and
unplanned turnover patterns should help a lot in mid- to
longer-term forecasting. Complementing and supporting the
information in departmental personnel systems will be data from
central agency-based systems.

In selecting the most appropriate mix of inputs
to achieve cost-effective delivery of services, managers need to
know all the costs of the various options of delivering their
products or services. Financial advisors can assist in costing
these options. Managers may seek more assistance from the
financial community on cost-benefit analysis, make-or-buy
policies and costing as well as those areas mentioned
previously.

The financial and personnel functions can no
longer work in isolation. Just as managers must know the human
resources implications of financial decisions, they must also
have good advice on the financial implications of personnel
decisions.

Legal Assistance

Establishing an Operating Budget in itself does
not automatically create legal issues. Nonetheless, managers must
be aware that using the flexibility of this budget concept could
lead to legal concerns or liabilities for the government.

For example, the delegation of ministerial
powers, duties or functions outside government, ceasing or
reducing inspection or service activities, and using contract
personnel may all have legal implications. When considering
program delivery options or changes, managers should consult
their departmental legal advisor.

Pilot Project Experience

In deciding to move to an Operating Budget
regime, the government recognized the need for a two-step
approach. The first step would be to implement pilot projects
based on the initial policy direction and administrative
arrangements outlined in the White Paper on Public Service 2000.
During this phase, the pilots would help to identify and resolve
specific issues that might arise during implementation. After
gaining experience with and refining the system, the second step
would be full implementation across government on April 1,
1993.

Although the pilot projects are at various stages
of implementing Operating Budgets, a summary of some early
results appears below. The following observations or
recommendations, which are not in order of priority, deserve
consideration.

To form a multi-disciplinary team dedicated to implementing
the project. This should include full-time representatives from
Finance, Personnel, Legal Services and Informatics, with
responsibility centre (RC) managers and part-time members from
other specialities as appropriate.

To ensure early union consultation and participation at the
local level.

To assess the EDP systems in place. Since managers will
require ready access to current financial information including
up-to-date salary data, do the EDP systems meet the information
needs of the Operating Budget regime?

To develop a training or orientation course for managers that
is specific to the department. The training should include the
use of salary planning models to determine the costs of, for
example, acting pay and reclassifications.

To develop a comprehensive communications plan that will keep
all employees, managers and unions regularly informed of
progress.

To review the payroll process to ensure that it is
functioning well and can meet the requirements of an Operating
Budget regime.

To ensure that financial coding structures allow managers to
control salary and non-salary expenditures easily and keep line
objects to a minimum.

To review financial, personnel and operational delegation
charts. Do the levels of delegation maximize program efficiency
and effectiveness? If delegation authority decisions are
required, they must be made early in the process and
communicated. Consultation with the affected managers is
advisable because delegation is integral to managerial
accountability. In addition, guidelines and training on delegated
authorities may be necessary because of new authorities and
philosophies.

To establish indicators or critical milestones to measure the
progress of implementation.

Appendix 1 - Definitions

Operating Budget Terms:

Salary

means all resources normally
categorized under Standard Object 01, i.e., personnel costs,
except those resources that are part of controlled capital
expenditures, and salaries and employee benefits paid under
statutory authority.

Other Operating

means all resources within
a Program or Operating Vote other than salary, capital
expenditures, transfer payments or any other payments that the
department or Treasury Board may deem appropriate to exclude from
the Operating Budget.

Capital

means durable tangible or
intangible assets that have a useful or economic life of more
than one year.

Controlled Capital Expenditures

means
those capital expenditures required to:

acquire lands, buildings and engineering structures and works;

acquire other capital items where the total cost of a project exceeds the limits to be established for the department; or

undertake major alterations, modifications or renovations that are beyond the limits established for the department and
extend the useful life or change the performance or capability of
the above-mentioned assets.

Minor Capital

means all capital
expenditures not considered to be controlled capital
expenditures.

Full-time equivalent (FTE)

means a
calculation that factors out the length of time an employee works
each week. For example, if the scheduled hours of work were the
same as the assigned hours of work and both had values of more
than 30, the employee is deemed to be full-time. Where the
assigned hours of work are less than the scheduled hours of work,
the employee is working part-time. The full-time equivalent (or
the portion of a full-time schedule worked by the part-time
employee) is the ratio of the assigned hours of work to the
scheduled hours of work.

RC manager

means a responsibility centre
manager.

Appendix 2 - EXPENDITURE MANAGEMENT PROCEDURES

Establishing an Operating Budget

The budgeting and reporting structure of
government will remain purpose-oriented with one Operating Budget
for each program. An Operating Budget will be established as part
of the Multi-Year Operational Plan (MYOP) review.

The Operating Budget will normally encompass the
resources annually appropriated for salaries and wages and other
operating and minor capital expenditures. Operating Budgets are
expressed on a gross expenditure basis and exclude transfer
payments.

Minor capital will be treated in the same manner
as other operating resources. The determination of minor capital
will be tailored to each department's circumstances having regard
to:

whether resources are designated for investment in program
infrastructure as part of a capital plan;

the potential for substitution for other inputs; and

the level of delegation -- that is, whether the responsible
manager has discretion to reallocate freely among all elements of
the Operating Budget.

In summary, capital expenditures will be
considered minor capital and will, therefore, be part of the
Operating Budget when such expenditures: are not investments in
fundamental program infrastructure; are substitutable with other
operating inputs; and are not controlled separately by
departmental management.

Departments should also consider whether there
may be elements of their operating resources that should be
excluded because of their non-discretionary nature, volatility,
and exceptional size as, for example, a quasi-statutory program
such as non-insured health services for natives, a subsidy to a
Crown corporation, or Supply and Services Canada banking
fees.

Allotments for Operating Budgets

For each Operating Budget, the Treasury Board
will establish a controlled allotment. Departments will be
responsible for establishing and managing their own
sub-allotments for salaries and wages and the balance of their
Operating Budget.

Vote Structures and Operating Budgets

Until agreement is reached with Parliament on
vote definitions compatible with the Operating Budget regime, the
following administrative arrangements will be used.

Transfers between operating and capital votes will require
approval through the Supplementary Estimates.

Departments with separate capital votes will be responsible
for maintaining notional allotments within those votes to
segregate the minor capital. Transfers between this notional
allotment and the operating votes will be through the MYOP or by
Supplementary Estimate.

Departments will have the authority to include such items in
final Supplementary Estimates provided they notify the Treasury
Board Secretariat of this requirement by February 1.

Two Percent Carry Forward

Under the Operating Budget regime, departments
and agencies will be authorized to carry forward to the following
year eligible lapsing funds of up to two percent of their Main
Estimates Operating Budgets.

The amount is not cumulative in that the maximum
carry over in a given year is two percent. However, it doesn't
have to be fully used in the year that immediately follows.
Departments will have the authority to include an item in the
following year's final Supplementary Estimates equal to the
eligible lapsing funds.

The computation of the carry forward amount
starts with the actual lapse that appears in the departmental
Public Accounts adjusted to:

exclude lapses directed by the Treasury Board;

exclude lapses associated with the transfer price;

exclude provisions in the lapse for wage settlements that
remain outstanding at year end for which the department
anticipates seeking TB Vote 5 funding for retroactive pay;
and

include offsets, excluding the above, taken by the Treasury
Board against eligible Supplementary Estimates items in the
previous year.

Transfer Price

Managers are not charged for certain costs that
derive from employee status, such as pension costs (including the
employer's share of the Canada Pension Plan), insurance benefits
(including the employer's share of unemployment insurance),
workers compensation and various payroll taxes. These costs add
up to about 20 percent of the value of salaries.

Under the Operating Budget regime, when a
department or agency moves resources between its provision for
personnel costs and the balance of its Operating Budget, the 20
percent factor will apply. The only exception is student
employment programs.

Departments are responsible and accountable for
managing and reporting these transactions. The transfer price
will be applied as follows:

when a department commits additional resources to salaries,
the department should establish in that year a lapsing
sub-allotment equivalent to 20 percent of the incremental
salaries;

when departments reallocate resources from salaries to other
elements of the Operating Budget, any transfer price adjustments
in that year will be made through final Supplementary
Estimates;

the cut-off date for notifying the Treasury Board Secretariat
will be February 1, after which there will be no credit or debit
for such transfers for that year; and

ongoing adjustments to reference levels will be made through
the MYOP.

Accommodation

The 20 percent transfer price includes no
provision for accommodation. In accordance with the Treasury
Board decision on the 1991-92 MYOP, departments are responsible
for paying from current reference levels the costs of additional
space for existing programs. When costing new policy initiatives,
departments will have to include accommodation costs. A credit
for accommodation will only apply when the following criteria are
met:

the accommodation requirement or release must stem directly
from and relate specifically to a shift from salaries to other
operating expenditures;

any premium would accurately reflect savings to Public
Works;

Public Works would advise on the savings involved. These
would be for rental and property operating expenses. For
Crown-owned accommodation, Public Works would have to estimate
indirect savings. The department and Treasury Board Secretariat
(TBS) would have to reach agreement; and

the mechanism for determining savings will be the annual MYOP
review of accommodation requirements.

Supplementary Estimates

Departments will not have recourse to the
Treasury Board for Supplementary Estimates for Operating Budgets,
except for the following:

additional resources approved for a policy initiative;

significant extraordinary and unforeseen workload or health
and safety items funded by the Treasury Board;

inter-vote transfers;

lapses eligible for carry forward; and

transfer price (credit) on resources transferred from
salaries and wages to other components of the Operating
Budget.

Compensation for Inflation

Compensation for the impact of inflation is an
issue of affordability. The compensation for inflation on
Operating Budgets will be determined in the context of the
following:

managers must be accountable for the financial impact of
their decisions.

The approach that has been adopted will provide
for the estimated impact of wage settlements based on the initial
composition of the Operating Budget, adjusted for resource
changes that the TB has approved.

The TB will provide compensation up-front without
controls. In other words, the salary adjustment reserve will not
be recreated and the resources will simply be rolled into the
Operating Budget. The consequence will be that managerial
decisions to change the mix of inputs will not have an impact on
the amount of resources provided for the estimated impact of wage
settlements.

Managing the Wage Bill

Under this regime, departments will have to
cash-manage their wage bill, including planning for the impact
and timing of collective agreements.

If contracts remain unsigned at year end,
departments will be expected to either lapse the funds provided
for those contracts or fund the retroactive costs when the
contracts are signed. When departments lapse the funds, they will
have access to Treasury Board Vote 5 for retroactive pay up to
the amount lapsed. (Note: this would be excluded from the two
percent carry forward so as not to result in a double
credit.)

The 0.6 percent provision for salary increments
will be built into the overall inflation adjustment factor for
the Operating Budget.

Beginning with the 1991-92 fiscal year, the TB
severely restricted access to its Vote 5. This will continue with
the Operating Budget regime. Departments will have access to Vote
5 in the following situations:

regular severance and maternity costs;

liquidation of vacation credits on termination;

work force adjustment costs arising from a specific
government initiative;

costs of restructuring a classification standard;

retroactive pay when the department has lapsed offsetting
amounts in the previous year (above the automatic carry forward);
and

extraordinary payments such as equal pay awards.

Reporting on the Size of the Public
Service

The government, through Statistics Canada, will
continue to report on the size of the Public Service. Statistics
Canada will use the term "full-time equivalent", which is
essentially a measure of consumption based on average levels of
employment. Full-time equivalents correspond to person-years and
are relatively simple to compute. It is a moving average of
people on the payroll each pay period, adjusted for part-time
workers.

Statistics Canada's reporting will comprise all
active employees of departments and agencies listed under
Schedule I, Part I, of the Public Service Staff Relations
Act. It will include the use of human resources currently
reported as controlled and non-controlled person-years. The
full-time equivalent count will, therefore, include
indeterminate, seasonal and casual employment. It will include
groups, organizations or agencies currently excluded from
Treasury Board person-year controls such as ministers' exempt
staff, parliamentary agencies like the Auditor General and
special operating agencies.

Departments will be responsible for reporting
their use of human resources in terms of full-time equivalents in
Part III of the Estimates. This document will become the
accountability framework for addressing employment levels in the
Public Service. Under an Operating Budget regime, departments
will both forecast and report on their use of people. The scope
will basically be the same as that currently covered in Part III,
including controlled and non-controlled person-years.

Appendix 3 - Costing Information

Guide to the Costing of Outputs in the
Government of Canada. Manual, 1989. Provides a model for
costing results within the Operational Planning Framework,
including definitions of basic cost accounting terms and
concepts. Discusses the steps that would typically be followed in
costing outputs, and the decisions to be made at each step. Also
presents the cost components and calculations required to support
each decision (e.g., cost recovery, most efficient organization,
make-or-buy, level of service, and benefit or cost decisions).
Authored by the Accounting and Costing Policy Branch of the
Comptroller General of Canada. Available from the Treasury Board
Distribution Centre.

Benefit-Cost Analysis Guide. Manual, 1976.
Outlines the analytical framework underlying benefit-cost
analysis by setting forth a consistent body of concepts,
definitions and assumptions. Increased freedom from detailed
central agency control carries with it increased responsibility
to use resources effectively. This Guide should be useful in
helping to improve the quality of the information available to
decision-makers. Authored by the Treasury Board Secretariat.
Available from the Canadian Government Publishing Centre (BT
35-2/1976E).

"A Costing Guide for 'Make or Buy' Analysis of
Government Services" (draft), April 1992. Provides a detailed,
step-by-step explanation of the methodology to compare the cost
of delivering a specific service in-house with the cost of
contracting it out. Developed by the Administrative Policy
Branch, Treasury Board Secretariat.

Guide for Measuring Employer Personnel
Costs, May 15, 1992. Provides guidance to departments that
are measuring total personnel costs for a particular operation or
service. Authored by the Personnel Policy Branch, Treasury Board
Secretariat.

"An Approach to the Most Efficient Organization" (draft), August 1988. Presents an approach to help managers
objectively review a program or activity to improve its
efficiency and cost-effectiveness. Includes examining alternative
management and service delivery strategies. Developed by the
Administrative Policy Branch, Treasury Board Secretariat.

"Measuring and Monitoring Program Performance and
Service to the Public" (draft), March 1991. Discusses developing
useful performance indicators. Developed by the Evaluation and
Audit Branch, Office of the Comptroller General (OCG).

Line Managers and Assessing Service to the
Public, April 1991. Developed by the Evaluation and Audit
Branch of the OCG.

"Measuring Client Satisfaction" (draft), October
1991. Developed by the Evaluation and Audit Branch of the
OCG.

Your Guide to Measuring Client
Satisfaction, April 1992. A guide to measuring client
satisfaction for line managers. Developed by the Evaluation and
Audit Branch of the OCG.

Appendix 4 - Management Information Systems

The last 10 years have seen the introduction of
computer-based financial information systems in all departments
and agencies. While these systems focused at first upon the
specific accounting control needs of the financial organizations
of government, their capabilities have been continually enhanced
over the years to satisfy the financial management requirements
of the wide spectrum of users in each department or agency.
Typically the financial information systems now in operation
provide, as a minimum, some capability for planning and
budgeting, revenue management, project accounting, and
expenditure and cost accounting.

With the use of flexible reporting tools, a
myriad of reports can be tailored to each user's needs and made
available on-line or in hard-copy format. Easier access to
information has also been possible by providing links to
individual PCs and to the local area networks (LANs). This change
has been particularly valuable for line managers who in the past
have not generally been able to obtain information as directly.
Many organizations have also begun to introduce links between the
financial and other administrative systems, such as personnel or
materiel, to provide integrated resource information to line
managers for program planning and delivery, which will be
increasingly important with Operating Budgets.

Information systems, specifications and studies
are available for several administrative functions through the
Software Exchange Service (SEC). Managers may use this service to
obtain free copies of existing information systems or
documentation that the government developed. In return, managers
should share the systems they develop or use by providing copies
to the SEC to provide potential assistance to others with similar
needs. Interdepartmental partnerships on common systems posted on
the Software Exchange Service are an effective cost-sharing
practice which is becoming more and more popular and which
managers should consider in the current restraint regime. The
Software Exchange Service may be contacted at (819) 956-0784.

Appendix 5 - The Manager's Checklist

Has my department established a consultative body of unions,
employees and management?

Has my department set up a multi-disciplinary team, including
finance, personnel communications, departmental legal advisors
and RC managers, to assist with implementation?

Have I shared information with all my employees?

Do we have the appropriate personnel and financial management
information systems in place to facilitate informed decision
making? What training is planned? Who's going to be trained?

Does corporate management's role support line managers? Are
corporate services staff in finance, personnel, and
administration working together and taking on a new consultative
role with line managers? What training have they received for
this role?

What has my department done to ensure that I will not be
overburdened with delegated administrative duties? Do we have a
plan to manage these responsibilities effectively?

To what extent are the personnel authorities I've been
delegated consistent with financial authorities? Are the
accountabilities in both areas defined and effective? Will my RC
benefit from savings or efficiencies resulting from our decisions
(e.g., carry forward)? What communications and training have I
received?

How will my department manage expenditures that are either
outside my control or disproportionately large for my budget
(e.g., a corporate budget of centrally managed funds)? If we have
a corporate budget, have the appropriate corresponding
authorities and accountability remained at the corporate level?
What are the rules to disburse these funds?

Am I prepared to take risks? Does my department encourage and
support me in taking reasonable risks? How does the
accountability structure consider and reflect possible
consequences of reasonable risk taking?

What are the criteria to evaluate implementation of Operating
Budgets (e.g., evaluation of management information systems,
appropriate delegation)?

Appendix 6 - Questions and Answers

Increased Workload

Will I be overwhelmed, rather than empowered,
with additional delegation or administrative
responsibilities?

Empowerment is not simply delegation, but
providing a vision and an environment that encourages and
motivates managers and employees to take responsibility, with
appropriate levels of risk and personal accountability.

In determining appropriate levels of delegation,
departments should not overburden managers with administrative
responsibilities that may be more appropriately retained
centrally or delegated to different levels or areas.

Risk

Will senior management accept that any risks I
take may have consequences?

Delegating increased authorities and
accountabilities will not empower managers if they fear failure
and are averse to taking risks. Empowerment requires taking
reasonable risks and being accountable for those decisions.
Senior management should ensure that managers have an environment
that supports appropriate levels of risk taking.

Consequence of Error

Having more flexibility, empowerment and
accountability is great, but what happens when I make a
mistake?

Obviously, if you make a decision that shows an
error in judgment, you will be expected to explain. This is no
different from the present. In most programs, managers are
continually faced with decision making. Unfortunately, mistakes
can and will happen. What is important and relevant is whether
you acted reasonably in the circumstances, in light of the
information available to you at the time.

Policies and Procedures

Will the constraints of personnel processes such
as staffing and classification restrict my flexibility to spend
my budget in the most effective and efficient way?

Departments are responsible and accountable for
personnel processes and for delegating personnel authorities.
Personnel policies and practices should aid rather than inhibit
good management. Applying the merit principle ensures that you
choose competent people for jobs. Good planning ensures that you
have properly trained and adequately skilled staff to achieve
operational objectives. Applying employment equity practices
ensures that you treat all people fairly and give them equitable
opportunities to develop. Departments should review and revise
policies and procedures that hinder effective and efficient
management.

Departments should delegate personnel authorities
appropriately in terms of their operational requirements.
Corporate services such as finance, personnel and administration
will have to work together to streamline processes and provide
consultative services to line managers. Central agencies will
continue to review personnel policies in order to eliminate
roadblocks to good management.

Classification

Will the changes I make in the mix and levels of
positions compromise the integrity of the classification
system?

You should choose the best mix of employees to
meet your program objectives and improve service levels. You must
still adhere to classification standards. If you focus
exclusively on reducing salary costs by under-classifying jobs,
deliberately, it will have a serious impact on service delivery
and could cause difficulties in recruiting. Classification
simplification will result in a system that you will find easier
to understand and manage. The Treasury Board will continue to
control the number of executives using the target executive count
(TEC).

Temporary Help, Casuals, Term Employees and
Students

Will the employment of temporary help, casuals,
term employees and students increase?

The current person-year (P-Y) control system
favours the hiring of students and temporary workers under
contract as they do not use P-Ys. Other factors such as the time
it takes to hire indeterminate employees and uncertainty about
P-Y allocation have added to the bias to hire term employees. The
federal government is the largest student employer in the
country, so students make a significant contribution to
government operations. To remove a potential financial bias, the
Treasury Board Secretariat is examining a salary framework for
students that helps managers and is fair to students. On the
other hand, managers taking part in pilot projects using
Operating Budgets have experienced more flexibility to hire
indeterminate employees, thereby retaining job-related expertise
in the Public Service, instead of casuals, terms, temporary help
and contract workers.

Salary Increases

Will I be accountable for increased personnel
costs as a result of negotiated salary increases? If so, will my
department participate in the negotiating process?

The dynamics of the collective bargaining process
remain unchanged by Operating Budgets, although the Secretariat
will involve departments more in that process. The major change
in resourcing will be that Treasury Board Vote 5 (Government
Contingencies) will not offset the results of collective
bargaining. As in 1992-93, there will be no Salary Adjustment
Reserve Allotment (SARA). Provision for inflation will be rolled
into departmental Operating Budgets in conjunction with the MYOP.
Departments will have to cash-manage, including lapsing of funds
at year end, if contract settlements remain outstanding. Treasury
Board Vote 5 will provide for retroactive pay in a subsequent
year or years up to the amount lapsed.

Accommodation

Will paying for accommodation directly encourage
managers to squeeze employees into substandard accommodation to
save money?

Managers should balance the incentive to save
money by saving space with the awareness that the quality of the
work environment has a direct impact on the productivity,
well-being and safety of employees and, therefore, on the level
of service to Canadians. The "transfer price" does not reflect
accommodation costs. If accommodation requirements increase, then
departments will be responsible for these additional costs. If,
on the other hand, accommodation requirements decrease,
departments may receive a credit.

Terms and Conditions of Employment

Is there a disincentive for me to respect terms
of collective agreements -- for example, hours of work, overtime,
acting pay -- to achieve the bottom line in my Operating
Budget?

No. Operating Budgets do not differ from current
budget management in this respect. Managers must continue to
respect the terms and conditions of employment and collective
agreements. Neglecting to do so may result in grievances and more
costs to the employer.

Management Information Systems

Will the personnel and financial systems I'll
need to use to manage effectively be adequately integrated by
April 1993?

Databases of financial and human resource
information systems have to be linked and integrated. The degree
of integration and access to information from departmental and
Supply and Services Canada (SSC) personnel systems will vary from
department to department. The Office of the Comptroller General,
the Treasury Board Secretariat and SSC are dealing with the
timeliness of salary information from central or common
systems.

The Public Service Compensation System and Common
Departmental Financial Systems will deal with many concerns about
implementation. Departments should assess their own pay
processes, salary controls and reporting systems and their
potential for expanding managers' access to them. Departments may
wish to look at the information systems of other departments --
for example, Communications Canada -- for potential applications.
The current state of departmental systems will influence
decisions on delegation. Departments should consider
incorporating salary planning tools for managers to help them
assess their options and the impact of their decisions. To assist
departments, the OCG has developed and issued profiles of salary
forecasting systems in use in a number of departments, and will
issue more information on salary budget and forecasting systems
shortly.

Public Service Size

Does eliminating person-year (P-Y) controls mean
that the government is no longer concerned about the size of the
Public Service?

No, the size of the Public Service remains a
public policy issue. However, other ways to measure its size have
been developed to replace the previous focus on the number of
P-Ys. In 1993, Statistics Canada will report on the size of the
Public Service using a measure called "full-time equivalents"
(FTE).

In addition, departments must continue to manage
the size of their organizations carefully. Even though size is no
longer subject to central controls, the number and type of
employees influence many management decisions including those on
work planning, requirements for office space and work
instruments, recruitment, career development strategies and
training.

Impact on Employees

How will Operating Budgets affect my position as
an employee of the Public Service?

There will be no change in the terms and
conditions of employment resulting from Operating Budgets.

Employee Communications

How will my employees be informed of this
initiative? What should I tell them?

Employees will receive information from many
sources including their deputy ministers, their unions and the
media. As with any new initiative, fragmented or incomplete
information may unsettle employees. To avoid information
shortfalls and alleviate employee concerns, you should discuss
the Operating Budget concept with them in an open and honest
way.

Appendix 7 - Please Take a Few Minutes...

This guide is intended to help managers
understand Operating Budgets and use them effectively.

We welcome suggestions to improve the policy and
invite you to let us know of any best practices so we can share
them with your colleagues in other departments and agencies.

Please send us your comments in any form and by
any medium you wish -- E-mail, the attached sheets or other
correspondence by mail or fax, or a phone call.